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Since mid-2010, precisely the time millions of US citizens used
up all of their 99 week of unemployment insurance, disability
claims have risen by 2.2 million. Those on disability are not
counted in the workforce and are not considered unemployed.

The number of workers receiving Social Security Disability
Insurance (SSDI) jumped 22 percent to 8.7 million in April from
7.1 million in December 2007, Social Security data show. That
helps explain as much as one quarter of the decline in the U.S.
labor-force participation rate during the period, according to
economists at JPMorgan Chase & Co. and Morgan
Stanley.

The participation rate -- the share of working-age people holding
a job or seeking one -- was 63.8 percent in March after falling
to a three-decade low of 63.7 percent in January. Disability
recipients may account for as much as 0.5 percentage point of the
more than 2 point drop since the end of 2007, the economists
calculate, and that contribution could grow when some extended
unemployment benefits expire at the end of this year.

“How we measure and understand what’s going on in the economy can
be influenced by the degree to which various public- support
programs are available and being used,” said Michael Feroli,
chief U.S. economist at JPMorgan in New York. “With a rising
number of disability beneficiaries, there are both lower
unemployment rates and lower participation rates.”

More than 99 percent of all SSDI beneficiaries remain in the
program until retirement age, David Greenlaw, a managing director
in New York at Morgan Stanley, wrote in a March research note,
citing government data. The program provides an average of $1,111
in monthly income to eligible workers with a physical or mental
impairment that will last at least 12 months or result in death,
according to Social Security.

Unemployment insurance requires that applicants search for job
opportunities, while disability insurance requires they be unable
to work.

In addition, “difficult-to-verify disorders,” including muscle
pain and mental illness, more easily qualify for SSDI under
program reforms, [David] Autor [economist at Massachusetts
Institute of Technology] wrote in a 2011 paper.

Based on current trends, 7 percent of the nonelderly adult
population could be receiving disability benefits by 2018,
Richard Burkhauser and Mary Daly wrote in the spring issue of the
Journal of Policy Analysis and Management. That’s two years after
the SSDI program will run through its trust fund, according to an
April report by the Social Security trustees. Costs
Increase

Costs Increase

Costs have increased with the rolls: The program spent $132
billion last year, more than twice as much as in 2000.

Non-Solutions

Richard Burkhauser, a policy professor at Cornell University, and
Mary Daly, associate research director at the Federal Reserve
Bank of San Francisco, think the solution is to raise taxes on
businesses with larger shares of people on disability.

While the paper provides a clear understanding of the problem,
their proposed solutions, centering around more taxes, would make
it more likely that businesses fire workers before they go on
disability, make it more likely businesses will seek younger, not
obese workers in excellent health in the first place.

While I am sure that happens today, nothing like incentives from
the Fed to increase that pressure on businesses.

How About Stopping the Fraud?

Autor's proposals dot not go far enough to stop what is clear
fraud.

Indeed,
Autor explicitly states "A second lesson, evident from the
drug and alcohol addiction experience, is that highly motivated
applicants in many cases will eventually succeed in obtaining
benefits, particularly because of the 1984 liberalization of the
criteria for pain and mental illness. While this latter
observation highlights that the SSDI disability determination
system is badly in need of modernization, my main conclusion is
that better gatekeeping cannot be the centerpiece of effective
SSDI reform."

I do not buy that, nor do I buy the excuse "Revoking
benefits en masse from needy beneficiaries is not politically
viable, whether or not this would be desirable from an efficiency
standpoint."

What about the "not-needy, fraudulent beneficiaries"?

Moreover, this country better come to grips about what is
"politically viable" before government percent of GDP
soars to 56% like it is in France, or worse yet, the extremely
unstable mess in Greece or Spain.

From an "efficiency" standpoint one has to be nuts to
not to want to stop the fraud. And throwing money at alcoholics,
drug addicts, and those claiming mental stress does nothing but
increase those number of claims.